Hawaii ranks No. 1 in cost of business

Hawaii ranked No. 1, above New York and Alaska, as the most expensive state in the nation for businesses, according to the Milken Institute's annual cost-of-doing-business index.

The Aloha State has held the top honor for three years in a row in the annual index, which measures wage costs, taxes, electricity costs and real estate costs for industrial and office space for all 50 U.S. states.

The Cost-of-Doing-Business Index indicates each state's comparative advantages or disadvantages in attracting and retaining businesses in five categories.

With a score of 151.5, overall costs of doing business in Hawaii were about 52 percent higher than the national average, based on data from 2006. New York ranked No. 2, and Alaska No. 3, both with costs of doing business about 31 percent above the national average.

Jim Tollefson, president and chief executive of the Chamber of Commerce of Hawaii, said the top ranking again came as no surprise.

In its own survey of some 1,100 members last year, the cost of doing business as well as work-force development were the top two concerns.

"We're doing all we can to improve our ranking," Tollefson said.

Hawaii also was the state with the highest electricity and industrial space costs in the nation. Connecticut was the state with the highest wage costs, while Vermont was the state with the highest taxes.

"We do have very high rates of electricity," said state economist Pearl Imada Iboshi. "It has been something that we've known for a long time. We have high rates, but we also have relatively low usage per capita. I think it's something we're concerned about and we continuously look for ways to reduce those costs to make it easy for businesses to start up."

On the other end of the spectrum, South Dakota was ranked as the least expensive state in which to do business, followed by Iowa and North Dakota.

Maine moved up 11 spots to 17th from 28th, due in large part to higher electricity costs. Mississippi, which moved up eight places, also had an increase in electricity costs.

Michigan moved down the rankings most, from 13th place in 2006 to 20th place this year.

The Milken Institute, an economic think tank based in Santa Monica, Calif., focuses on fostering capital generation for entrepreneurs across the globe.